Differences in Herding: Individual vs. Institutional Investors
31 Pages Posted: 13 Feb 2009 Last revised: 16 Feb 2015
Date Written: February 14, 2015
Using a trading volume-based measure, we study the differences between institutional and individual investors in herding. First, better-informed institutional investors trade more selectively, whereas less-informed individuals allocate their investments evenly across stocks. Second, individual investors rely more on public information for their trades as they are influenced by market sentiment and attention-grabbing events. Third, institutional investors react asymmetrically to up- and down-market movements, whereas individual investors do not. Finally, despite these differences in herding both individual and institutional investors pay close attention to one another’s trades in forming a consensus.
Keywords: Herding, Individual and institutional trading volumes, Information asymmetry, Market returns
JEL Classification: G1, G12, G23
Suggested Citation: Suggested Citation